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Is the bailout enough to right-foot the banks?

September 23, 2008

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson are urging Congress to act swiftly on a $700 billion bailout plan for the financial system.

Politico.com quotes a former Federal Reserve official as saying, “the alternative is complete financial Armageddon and a great depression.”

Hugo Duncan writes in the Evening Standard that if the bailout fails, “banking stocks are likely to drag shares around the world into the mire sparking further panic over the financial system and state of the economy. It would make recession in America and Britain ever more likely, with house prices and standards of living falling and repossessions and unemployment rising.”

Assuming that Congress approves the Bernanke-Paulson bailout plan, do you think it is enough to stabilize the banking sector?

The impact on Main Street from the crisis on Wall Street is another open question. “How long it will take the banks to restore health to their balance sheets, raise capital and start lending money again,” Bernard Baumohl, chief global economist at the Economic Outlook Group, tells Nick Carey. ”That could take a year and credit conditions may start to improve in the second half of 2009.”

For full coverage of the crisis in credit, click here.

Comments

The banks and Wall street gambled. They lost. Why should the taxpayers bail them out?

If we are to socialize the losses, let’s socialize the profits. Right now a lot of people have made a lot of money on this fiasco. Let them bail themsleves out! It is called RESPONSIBILITY!

The banks and Wall Street profess a free market economy and now when they are losing they want socialism.

Oh by the way, my business is failing and I think it will effect the world economy, can you bail me out?

Posted by richard | Report as abusive
 

helicopter ben and hank proposing solutions to the crisis is like hiring a fox to design a henhouse.

Posted by basho | Report as abusive
 

Bail out!!! NO WAY!!!

Let the chips fall as they may. Fearmongering about a depression if we, the taxpayers do not bail out those that made bad business decisions, so be it. Let the markets correct themselves and we the taxpayers should make the politicians feel very depressed by voting the idiots out of office. I am not interested in living in a socialist, communist, dictatorial country. I want to live in AMERICA where hard work and due diligence make everyone’s chances to be rewarded with a good quality of life. I do not want my government to control as much as they seem to want to control.

We have already lost so many civil liberties over the past 50 years in is almost incomprehensible the people continue to allow the government to destroy us from within.

Posted by Steve | Report as abusive
 

“Do you think it is enough to stabilize the banking sector?”

The answer has to be “no.”

Here’s the scary part of today’s testimony everyone seems to have missed: SEC chairman Chris Cox’s statement that the Credit Default Swap (CDS) market is “completely unregulated.” It’s size? Somewhere in the $50 TRILLION range.

Cox virtually equated this market with the sub-prime mortgage market — you know, the one that has already collapsed and “caused” our current problem? He called for regulation. He didn’t have to come right out and say the words, but it is the next to go. That’s $50+ TRILLION. He said it, not me.

Paulson was surprisingly flustered. He didn’t have good answers. He seems unsure of the scope of the problem. He thinks the $700 billion package might be enough. He’s in a hurry because he’ll likely have to come back and ask for more. Much more. It’s a game of hope.

But Cox isn’t as foggy on the issue.

The entire economy has been deeply infected by a flagrantly out of control system of promises and counter-promises that were never designed to be delivered upon. In this sense, *everyone* in the market that Paulson represents (and believe me, he does represent them) is a holder of multitudes of sub-prime promises.

Will there be a severe cost to a total collapse? Yes, much like the fever you have to have, and then wait for it to break, to get over an infection.

$700 billion is just aspirin.

Posted by JM Freeh | Report as abusive
 

I find it revolting that the architects of this bailout does not clearly spell out that the banks’ shareholders must suffer for the banks mistakes. If the taxpayer makes it possible for the businesses to continue they are the new owners. This is what happended with Fannie & Freddie – the stock lost its value – and that should happen now.

Are Paulson et al. helping out their filthy rich buddies; from Reuters today:

Senate Democrats, seeking to limit potential losses for taxpayers, have proposed that the government take equity stakes in firms selling bad debts to the U.S. Treasury, but the Treasury opposes that step.

Posted by Erich | Report as abusive
 

The only cure for all this is making the banks open up all their books, level 3 assets included, and let the world see what they have. The credit market has frozen because nobody knows what kind of junk the other guy has on his books. Even if they get to dump some of their junk on the market is that going to make other banks confident that they don’t just have more junk hidden in their books. This will do nothing to loosen up the credit market and start to turn this around. Bailouts to troubled homeowners isn’t going to do it either(but thanks for the effort Dems). This is an absolute grab for money before the whole system collapses. This bailout will make things much worse because it will devalue the dollar and push our government toward bankruptcy. I’d rather have a bankrupt financial system than a bankrupt government.

Posted by waubay | Report as abusive
 

I wonder why the adminstration is in such a rush. The Bush/Cheney cadre see this as a last chance effort to grab more of the taxpayer dollars before the party ends.
What next, Dick Cheney might suggest Haliburton to come in and clean up the mess!

 

Nobody’s bailing me out! Let the criminals find a rough ride with the tide!

Posted by Martin | Report as abusive
 

We have a fiat currency bubble burst.

Financial Crisis Fundamental Foundation Flaws and Solution

Congress is tapping into this info today.

On http://coinage.me/

The flaws are articulated in detail as well as the solution which involves a New Global Value Exchange Accounting System they have a list of power questions that media and journalists can ask.

One interesting ironic insight is a small fortune can be made off pennies as a result of the amazing paradox resulting from current market conditions. 1 lb of pennies is worth $6.00 tangible and only $3.00 intangible.

They make an interesting point why shouldn’t the bail out (citizens going into debt) go to pay off the mortgages and then trickle down to those firms needing to be bailed out?

Read the power questions. http://coinage.me/power_questions.htm

Posted by Richard Thomas | Report as abusive
 

So called experts are saying our economy will collapse if there is no bail out. When did our economy start revolving around mortgages? Maybe if investment bankers had been putting their money into manufacturing, research and development and supporting American companies instead of high risk mortgages they wouldn’t be in this situation. Why should I, as a taxpayer, bail them out for their bad decisions?

Posted by Rick | Report as abusive
 

I am totally convinced that the rescue package of usd 700 billion will be insufficient and that further packages will follow. The size of the problem can be estimated at c. usd 80 TRILLION if Credit Default Swaps (usd 67 trillion) and CDOs/CLOs/CMOs/monoline insurers defaults/etc are included. The market will continue falling and the real economy will suffer from the ongoing unwinding process. The US dollar will devalue vs other main currencies and gold may reach usd 2000/ounce (it reached usd 850 /ounce back in 1980 and now we will be in the middle of a tsunami of US dollars)

Posted by ignacio | Report as abusive
 

Since we are talking bail outs, remember the Chrysler bailout? And now they want to bail out some financial institutions? Let me emphasize my point here – with all the concerns about bailing out banks and car companies, I want to state that this is how the social security funding should be handled. Just write checks for hundreds of billions of dollars to bail out social security, same as we spend billions for Irag and we get no appreciation for it. My point again is, we can bail out foreign countries, banks, and car companies, yet we wonder what to do about the social security funds.

One more thing, I understand that the government borrowed money from SS and there were (are) IOUs. Were these ever paid back with interest? I have not heard 1 comment about the IOUs from the congress, senate, or presidential hopefuls.

Posted by M Shanks | Report as abusive
 

Probably no where near the amount of money required considering the amount of financial instruments (Derivatives) written — between 45.5 and 62 trillion dollars. They don’t even know what they wrote!
Bail out, what a joke, they must be kidding. Whether or not such a bail out would work no one knows and you still have to pay your mortgage or lose your house — that’s the way it should be.
If you should pay your mortgage off does it come out of the bad debt (Derivatives) it was bundled into — probably not they don’t even know where it is. What then is the point? Also the designers of this fiasco, some of which are still drawing incredible salaries or in a position of high office want that compensation to continue on the tax payers dime — Actually they should be in JAIL!

 

NO BAIL OUT ~ I say NO to this! If the economy collapses then it will do so anyway, this will NOT fix it; might as well start dealing with it now. This looks really bad for Americans; this administration wants ALL the power and ALL the money and NO accountability! I have just had ENOUGH of them and their ‘golden parachute’ friends; they all need to take a good look in the mirror and face up to their own greedy mistakes. The people in this country need to stand up and say NO MORE to fear-mongering and bully tactics. We are all in this together; just give us a leader who can think straight and has a conscience, and we can work together to solve anything. We have GREAT SPIRIT in this country; we are BETTER THAN THIS!!!

Posted by Lisa Bellows | Report as abusive
 

do not do the bail out. What about “don’t do the crime if you can’t do the time.”

Posted by marsha westenberg | Report as abusive
 

Will $700B be enough – hardly! The final bill will undoubtedly run into the $Trillions!

How could this happen? I would maintain that this global financial disaster was made possible by extreme greed, and unbelievable contempt for the citizens, on the part of these speculators.

It was also made possible by the flawed “free market” policies of blind ideologues like Milton Friedman, Ronald Reagan, George Bush, and John McCain (the latter “staunchly promoting the mantra of unregulated capital markets for the last 26 years” as he used to proudly say until Monday of this week!).

And finally it was made possible by a complete failure of oversight on the part of our government and financial regulatory agencies, aided by the active collaboration of many enablers at all levels in the current Bush administration.

No wonder that we have been lurching headlong from one speculative bubble to the next (dot-com bust, subprime bust, general housing bust, and now global financial bust).

But conducting risky business cannot mean profiting massively when the bets pay off, and running to the government and the taxpayers when the risky bets fail!

We must not permit the perpetrators of this massive Ponzi scheme to be rewarded with $700B or any other amount of money!

These bankers and hedge fund operators must be held accountable for the risks they took – if that means that others shall go bankrupt, as happened to Lehman Brothers, then so be it.

In particular, Secretary Paulson, as CEO of Goldman Sachs, one of the most aggressive players in this financial mess, personally raked in hundreds of millions of dollars in income before this house of cards fell apart.

Therefore it would be absurd to give him a blank check of taxpayer money, what he calls “clean” legislation, allowing him to do whatever he wishes with no controls, and no legal recourse for the taxpayers footing the bill. That is what got us into this mess in the first place!

Rather, we must, as a condition for this bailout, create a legal framework, and a global regulatory capability, to prevent these speculators from assembling yet more gigantic Ponzi schemes in the future, for example with global speculation in energy, now that the mortgaged public has been milked dry.

This crisis has a long course to run, and will likely extract a huge and painful price from Americans, and from people around the globe. Many Americans, especially retirees living on fixed incomes, may never recover from this disaster.

The consequences for our country around the world will be equally bitter:
—accelerating erosion of American credibility and influence around the globe, and
—rapidly increasing cultural, political, economic and military isolation of the US among the world’s peoples.

We must,therefore, make the restoration of responsibility and accountability the acid test for any legislation to mitigate this crisis.

No matter how long it takes, and no matter how much Paulson, Bernacke or anyone else balks at being held accountable for the hundreds of billions they are demanding, accountability must be achieved from the onset, and must be enforceable going forward.

Finally, and thankfully, we as American citizens are blessed and privileged to have the opportunity to vote in a few short weeks!

For us, this economic disaster should be the wake-up call, even the ultimate battle cry, to junk the failed, discredited, and disastrous economic, social, and military policies of the George Bushs and John McCains who got us into this mess.

It is time for us to vote for serious change by supporting and voting for Barack Obama, who is the only candidate for President capable of bringing responsibility and accountability back to American politics.

Together, we can do that.

 

Bernanke (or was it Paulson?) said that “Capitalism is dead.” I beg to differ…. it IS capitalism that acknowledged and recognized the fault… and it will be capitalism to fix it… Bail them out? No way… The fancied men who ran the system should have known better… Why must the taxpayer pay for the yachts of the privileged few?

Posted by J Frojolle | Report as abusive
 

The thoughts of a creative thinker on Wall Street: We know the Federal Reserve was created to be the lender of last resort at times like this when credit markets tighten up. The Fed can make loans to banks, corporations, even individuals. So all of us big Wall Street firms that need a loan, we could easily go to the Fed for a loan. But wait, if we did that, we would have to pay the money back. That’s lame, that’s too boring. Here on Wall Street we’re creative, that’s why we’re paid the big bucks. Let’s see . . . I got it! Wouldn’t it be better to dump worthless subprime loans on the government for inflated prices and keep the money? Yes, of course! O, brave new world! How will we make this happen? We’ll threaten the Congress that if they don’t approve this in five days the whole thing is going to collapse. What a great plan! This will be the big score!!! We will make it happen so fast the taxpayers won’t know what hit them . . .

Posted by Andy | Report as abusive
 

I just hope congress doesn’t fall for this Republican/ Bush “the sky is falling crisis” – we need a blank check now. The Republican/Bush boys have had a whole year to work this out. See if Wall St can handle this storm like the Bush administration helped New Orleans. Oh! thats right – fend for yourself!

Posted by bob | Report as abusive
 

It is unbelievable that the American people are not standing, guns in hand, in open revolt outside their local centers of government. This “bailout”, which can do quite literally nothing but extend the malaise a little longer, is the sort of irresponsible power-grabbing that congress and the presidency have been guilty of on both sides of the political aisle since the Great Depression. We’re going to get a new “New Deal” in which socialized energy projects employ those displaced by the massive economic schism in the short-term while the entire economy is restructured around a central planning authority that keeps tight reins on everyone.

Welcome to new fascism. Corporations have become the state, and in the name of nationalism the people will bend over and take it. Why? Because we are too afraid of struggle, too intimidated by change, too proud to admit our mistakes. The saddest part is that the taxpayer has been largely helpless in fighting this trend. Sure, we can vote everyone out of office, but elected officials no longer fear the voter. There’s always another fatcat to take the place of the last.

I will not be surprised if there isn’t blood shed over this mess before the whole thing simmers down.

Posted by da6d | Report as abusive
 

While we profess to be the freedom nation of the world,
we do not exercise it at home.
If proof positive exists that the rick rule off the back of the average, this bailout must be it!

Nothing has succeeded in the Republican rein on power…and yet we are still lumbered with a lame duck when foreign Prime-ministers who forced their country into the coalition are gone.

The possibility of another lame duck 71 year-old running a country is imminent.
Professing an iron fist with a country depleted of money, credibility and self-respect.

Both parties will learn to respect the people if the Republicans pay dearly in the polls for their greed and blind disrespect to the people.

This will happen again if the voter lets them get away with it!

Posted by Raymond | Report as abusive
 

I dont know why majority of analysts think bailout is bad.I firmly believe that it is good for over all USA and the world.
Analysts are saying “why to bail out big companies with tax payer money ”

I also have some reservation about this but I think bail out is not only about big investment companies.Normal people also have put there money in stock market and in housing .If housing and stock market starts to improve it will also improve common people
life.Taxpayers cannot remain unaffected if the housing and stock market deteriorate.

And its not about housing and stock only .If you can see big picture ,everything is interrelated like employment etc.

I think few peoples who loves gold very much are shouting too much because they are afraid if stock market and housing start improving money will flow from gold to this markets.They are just cursing the world economy to go to hell fast .They are making people believe that we are at the end of the world and gold can only save us .I think we have experienced many known and unknown turbulence’s but still we stand.And to remind with so much speculation gold is not safe heaven anymore

 

It depends how the bailout is structured. The devil is in the details. I think is blatantly wrong to use the word “Bailout” in cases such as Bear&Stearn, AIG, etc. it gives people the wrong perception as if it was government money. When Chrysler was helped we got every penny back plus interest. JP Morgan aid never belonged to the taxpayer, neither did AIG aid. All the money used belongs to the banks. The FED is a private corporation “The “Federal Reserve Bank of New York” “NOT of the USA”. How it uses its money is none the taxpayers business, because all the money is funded by the banks. Yes, the 700 billion is coming from the taxpayer (not the FED) If you care to disallow interbank loans, commercial funds to freeze, and corporations to fail like dominos, foreign funds to stop flowing into the US, well than go ahead and deny the aid. See you in the unemployment line. Either way the dollar value will be hurt, so will your buying power. And since the taxpayer was so against helping AIG it won’t see a penny of the 9.775 Billion in interest income going to the FED.

Posted by ddavid | Report as abusive
 

$700 billion now to save the banks and the overpaid and over rewarded brokers and when that fails to do the job, what then?
Another $700 billion please?
And if that fails?
Let the house of cards fall down now and start over.
Why are you and I paying to rescue the very people who put us in this mess in the first place?

Posted by Robin | Report as abusive
 

The problem that I see with this bailout is that the US Government itself is bankrupt, largely due to 50 years of massive, failing military adventures … the USA is now spending as much as ALL other countries in the world combined, on its military hardware and manpower, its CIA and other “secret” organizations spying on Americans and everyone else, its “Homeland Security” department constantly looking for new ways to take away freedoms, its veterans affairs dept, underfunded but still huge.

This bailout will instantly add $5,000 to the debt of each taxpaying American citizen. Its been clear for a long time that the US government has no intention of ever paying off its debts. Why anyone would trust them with new money is beyond me.

It is high time that the US government declare bankruptcy and put itself at the mercy of its creditors.
The longer they wait, the worse it will be for them.

Posted by john tucker | Report as abusive
 

Regardless of the outcome of the bailout these monster banks must be broken up. They grow ever more enormous before our eyes. One wonders if this fact alone explains what we are seeing. It is obviously a profound national security issue to have any corporation or industry so critical to our economic survival that its failure can bring down the republic. What ever happened to anti-trust?

Are our legislators so terrified of these companies that the congress will do anything to appease them? Will these giant corporations forever retain quick and easy access to the US treasury? Will they continue to dictate the form and the outcome of legislation and enjoy successful litigation to their own self-serving advantage at the expense of the working class?

Why is it impossible to get billions for education, health care and the needy middle class after years of legislative stonewalling, while Wall Street gets trillions in weeks with the only disagreement being over the details?

Posted by robert | Report as abusive
 

This bailout “gift” will no more stop the coming depression than the so called “stimulus package”. It will only postpone it a bit longer.
What kind of a school of economics did your writer attend?

Posted by william powell | Report as abusive
 

The true cost will be substantially less than the $700 billion as the mortgage backed securities still have value over the medium/longer term.

The financial system can be more closely regulated in future to avoid excessive lending / risk taking.

The cost to the economy of not proceeeding would be much higher.

Posted by Keith | Report as abusive
 

NO BAILOUT! The overwhelming majority of taxpayers are saying no to this. We have a government of traitors and crooks! A bailout is not the solution, jail time for every member of congress and the administration is.

Posted by Steve M | Report as abusive
 

Here’s an idea,

America has a population of 303,824,640 give each and ever American 1 million dollars. And let those who caused this mess suffer. Hey even if the Government paid every Hard working American citizen a million, there is more then enough change to give the leftovers to Wall Street.

The people first.

 

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